Buying second mortgage for mother - in - law in Arizona
I looked at the posts for the previous couple
weeks to see if a similar situation was discussed. The
closest I found was the person with the condo and two
houses, but it wasn't quite the same.
Right now my husband and I own a home and his mom
lives with us. She is unemployed and we claim her as a
dependent on our income tax. We live in Arizona.
We are purchasing a second home (land and mobile
combination) for his mom to live in. We still have the
mortgage on our first home, plus we will be paying the
mortgage--and the utility bills--on the second home
for his mom.
I have three questions. Two relating to taxes, one to
mortgages.
1. Will we still be able to claim her as a dependent
even though she no longer will be living "under our
roof"? We will still be paying the majority of her
living expenses (mortgage and utility bills), as well
as providing her with a car and carrying her on our
auto insurance. She will buy her own food and maybe
pay her phone bill or electric bill (she gets a very
small social security check).
2. This is the mortgage question. I'm asking it next
because the second tax question is kind of a follow-on
to it. We've been told by the mortgage company that we
have to finance the second house as income property.
This really surprised me because, as I said, we will
be paying the mortgage and not receiving income on the
property. He said that we couldn't purchase it as a
"vacation" home because it is in the same town as our
primary residence. So is the "income property" option
really our only option? Apparently, income property is
financed at a higher interest rate (about 1 percent).
This bites.
3. If we do purchase the second home as income
property (which looks like our only option), is there
any tax advantage to it since we *won't* be making any
income from it? Is it possible to declare it as a loss
or something??? (Hope that last one wasn't a silly
question--I've never had to declare anything as a loss
before and don't really know what it involves.)
she will still be relying on you for support.
Sounds like a gimmick to get people to pay a higher
rate of interest. I'm sorry I cannot respond to that
aspect of the transaction. The rules for deductions
on a second home allow for deduction of mortgage
interest and taxes, as it is with your first (or
primary) residence.
If you purchased a second property, as an investment
(rental property), that's what it would have to be.
It could not be designated a rental property, if used
as you describe. No losses will be allowed since the
expenses are part of your parent's support.